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San Juan Capistrano

WATER RATE LAWSUIT UPDATE

By John Perry

Board Member, Capistrano Taxpayers Association

When the City Council majority voted to increase water rates in February 2010 by 40% in the first year, with annual increases of 3% per year thereafter, they were warned that the new rate structure did not comply with Proposition 218, which holds that water rates must be based on the actual cost to deliver the water. The new system prepared by water consultant Black and Veatch at the behest of the City used steeply tiered rates to force water conservation. The City tightened the water allocation which forced water users into three billing “tiers” at progressively higher rates designed to punish water users. The City was also warned that charging residential customers for recycled water they were not receiving was a violation of Proposition 218.

In July 2012, the attorney for the newly formed Capistrano Taxpayers Association (CTA) wrote two letters to the City requesting that the City disclose the basis (justification) for its progressive water rate schedule or the CTA would file suit. The City ignored the requests so the suit was filed in August 2012. After a year of legal wrangling, the trial took place in August 2013 and an OC Superior Court judge ruled that the City had indeed adopted and charged illegal water rates. The judge issued an order directing the City to immediately stop billing the illegal water rates and to stop billing domestic water users for recycled water that weren’t receiving. The City Council voted to appeal the judgment and to continue billing the illegal water rates during the appeal period. In January 2014, the City filed its appeal with the 4th District Court of Appeal citing reasons why they think the judge erred in his determination that the water rates were illegal. The City now claims that tiers are really penalties, not fees, and as such are not subject to the requirements of Proposition 218. They further assert that the city was justified in forcing domestic rate payers to subsidize recycled water users “because everyone benefits from the use of recycled water because it increases supply.” In their response filled on April 1, 2014, CTA attorneys rejected those arguments, pointing to a number of misstatements and distortions in the City’s appeal.

The case will be heard by the 4th District Appellant Court in the fall of 2014, with a lot riding on the outcome. When the City Council decided to continue billing illegal rates during the appeal, they are exposing the City to significant refunds of water overcharges if they lose the appeal. If the Appellant Court rules in favor of the CTA, the city must refund all of the money illegally paid by water rate payers from August 2013 to the final date of the new legal water rate implementation in July 2014, or until the date of the appeal decision, whichever comes first. The cost of the refund from the City could cost millions of dollars.

The lawsuit and legal expense could have been avoided if the City Council had just listened to its residents and changed the water rates to conform to Proposition 218 as they were urged to do repeatedly prior to the lawsuit being filed. The CTA will update CCS readers as information becomes available.

For more information or to donate to the CTA, visit their website at: www.capotax.org.

John Perry graduated from USC with a Masters Degree in Education with additional certification in School Business Management. He worked in Education for 25 years as an Assistant Superintendent of Business Services before retiring. John was appointed to the Special Water Management and Operations Audit Committee in 2011 and is a founding Board member of the Capistrano Taxpayer’s Association. He has lived in San Juan Capistrano for 23 years.

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With high unemployment levels and with our City's debt at over $100 million, reigning in City costs is more important than ever. In a recent CCS article, we published a detailed list of City Hall compensation and benefit expenses by position and employee. You can view the details yourself and decide whether you think this is a good use of scarce taxpayer dollars.